|
| Home | About Us | Resources | Archive | Free Reports | Market Window |
The benefit of quantitative easing has essentially flowed into Wall Street, into investment banks, into the banking sector but it hasn't flowed into the typical household in the US.
Unemployment is still horrible at the present time with a lot of people being either unemployed or under employed.
As a result, we have a very strange economy. We have booming financial markets, but at the same time the average household – the man on the street is basically suffering.
Unemployment is still horrible at the present time with a lot of people being either unemployed or under employed.
As a result, we have a very strange economy. We have booming financial markets, but at the same time the average household – the man on the street is basically suffering.
- Marc Faber, The Gloom, Boom, and Doom Report
Sales of newly built homes rose to the highest level in more than a year while the supply of these homes dropped to new lows, according to government data released on Wednesday.
Purchases of single-family homes rose 6.2% in October from September to a seasonally adjusted annual rate of 430,000, the Commerce Department reported. The jump was driven solely by the South, the largest new home sales market in the nation. That region, which includes the Washington, D.C. area, posted a 23% gain while sales in other regions slipped.
Meanwhile, the supply of new homes has plummeted to the lowest level in nearly four decades, a promising sign that supply and demand for new homes will soon fall in line and help stabilize home prices.
Purchases of single-family homes rose 6.2% in October from September to a seasonally adjusted annual rate of 430,000, the Commerce Department reported. The jump was driven solely by the South, the largest new home sales market in the nation. That region, which includes the Washington, D.C. area, posted a 23% gain while sales in other regions slipped.
Meanwhile, the supply of new homes has plummeted to the lowest level in nearly four decades, a promising sign that supply and demand for new homes will soon fall in line and help stabilize home prices.
- Washington Post
The U.S. deficit set a record this year: $1.4 trillion. We're teenagers when it comes to money. We want China to drop us off at the mall with a credit card and come back at 8 o'clock.
- Jimmy Fallon
-
A Run on the Dollar Starts Soon
By Porter Stansberry Saturday, November 28, 2009 A Run on the Dollar Starts Soon -
Supreme Investing Confidence: How I Got It and How You Can Too
By Dr. Steve Sjuggerud Friday, November 27, 2009 Supreme Investing Confidence: How I Got It and How You Can Too -
Gold Feels Like a Bubble... What Do I Do?
By Dr. Steve Sjuggerud Wednesday, November 25, 2009 Gold Feels Like a Bubble... What Do I Do? -
Rick Rule's Largest Personal Speculation
By Tom Dyson Tuesday, November 24, 2009 Rick Rule's Largest Personal Speculation -
Porter Stansberry Is My Patsy
By Tom Dyson Monday, November 23, 2009 Porter Stansberry Is My Patsy
The Only Way I Know to Generate 12% Income... Safely
By Tom DysonMonday, November 30, 2009
It's a terrible time to be an income investor...
The Fed has pushed interest rates to the lowest levels in history. Money market funds pay nothing. Your bank account pays nothing. Treasury bills pay nothing. Even if you decide to take more risk and buy a long-term Treasury, you'll still make less than 4%.
Municipal bonds are trading close to 40-year lows. The dividend yield on stocks is terrible... at 2.2% for the S&P 500. Even my favorite pipeline investments now yield less than 8%.
To top it all off, most income investments have enjoyed a huge bounce in the stock and bond markets this year. In short, chasing yield in this environment is a risky game and it's likely to end in an accident.
Earlier this year, I introduced my subscribers to a new strategy for collecting income. This strategy is called "covered call writing" and it makes use of the options market to generate cash income.
Covered call income is unique in the world of finance. It's the only way I know to earn a high yield, without taking a flyer on some issuer's ability to pay you back. With all the risk in the credit markets right now, earning income this way is an incredibly useful strategy.
So how does it work?
Essentially, you sell the future upside in a stock position you own to another investor in return for a cash payment today. It's incredibly simple...
There are two parts to a covered call trade. First, you buy a stock. Then, you sell a call option against that stock. You receive a premium for selling the call option. In return, you promise to sell your stock if it rises past a certain price in the future.
Last year, we earned income this way from blue-chip stocks. Volatility peaked in November 2008, when the credit markets were broken and the future was uncertain. The S&P 500 had fallen over 50% at that point. It was the perfect time to use the covered call strategy. We were able to sell the most expensive options in history and protect our downside with stocks at decade lows. We made more than 40% on safe stocks like Coca-Cola and Intel in one year.
The problem is, covered call writing on blue-chip stocks is not a slam dunk like it was months ago. Option prices are down 78% from their peak in 2008, seriously hurting our potential income stream. Meanwhile, the stock market has rallied 70% in nine months. Signs of weakness are starting to appear. Former market leader Goldman Sachs just hit a two and a half month low. As my colleague Brian Hunt has shown, there is no buying power behind market rallies any more.
If you think stocks are set for a period of profit-taking weakness like I do, here's a unique covered call strategy to consider: writing covered call options on "inverse" exchange-traded funds (ETFs).
Inverse ETFs are investment funds set up to move in the opposite direction of conventional stocks and ETFs. Take the inverse China ETF (FXP) for example. It is structured to return double the inverse of the major China ETF (FXI). Or the inverse financial ETF (SKF). It is set up to return double the inverse of a bank stock index. (Due to the imperfect way they are set up, these funds don't perfectly mirror regular returns. But over the short term, they get close.)
SKF falls when the bank stocks rise. It rises when bank stocks fall. Right now, SKF is cheap, having fallen from more than $200 a share to $24. Meanwhile, there's plenty of volatility in the stock price. Right now, SKF trades for $24.50. You can buy a batch of shares and sell January $26 call options on the position for $1.41. That's a 5.7% instant payment on your ETF... for just two months. And you get to keep a little bit of upside.
Selling covered calls on SKF makes money as long as bank stocks don't soar and send SKF down in value. It makes money if bank stocks trade sideways or decline a bit.
I don't recommend this sort of "income trading" to most investors. It requires a good sense of timing. It requires you to be handy with options. But conventional income investing just isn't paying off right now. If you're comfortable with doing a little extra work, consider the strategy above.
Good investing,
Tom Dyson
P.S. If you're interested in these unique "income trading" ideas – or more conventional income producers like pipeline stocks and bonds – consider taking a trial subscription to The 12% Letter. You can learn more about a subscription here.
The Fed has pushed interest rates to the lowest levels in history. Money market funds pay nothing. Your bank account pays nothing. Treasury bills pay nothing. Even if you decide to take more risk and buy a long-term Treasury, you'll still make less than 4%.
Municipal bonds are trading close to 40-year lows. The dividend yield on stocks is terrible... at 2.2% for the S&P 500. Even my favorite pipeline investments now yield less than 8%.
To top it all off, most income investments have enjoyed a huge bounce in the stock and bond markets this year. In short, chasing yield in this environment is a risky game and it's likely to end in an accident.
Earlier this year, I introduced my subscribers to a new strategy for collecting income. This strategy is called "covered call writing" and it makes use of the options market to generate cash income.
Covered call income is unique in the world of finance. It's the only way I know to earn a high yield, without taking a flyer on some issuer's ability to pay you back. With all the risk in the credit markets right now, earning income this way is an incredibly useful strategy.
So how does it work?
Essentially, you sell the future upside in a stock position you own to another investor in return for a cash payment today. It's incredibly simple...
There are two parts to a covered call trade. First, you buy a stock. Then, you sell a call option against that stock. You receive a premium for selling the call option. In return, you promise to sell your stock if it rises past a certain price in the future.
Last year, we earned income this way from blue-chip stocks. Volatility peaked in November 2008, when the credit markets were broken and the future was uncertain. The S&P 500 had fallen over 50% at that point. It was the perfect time to use the covered call strategy. We were able to sell the most expensive options in history and protect our downside with stocks at decade lows. We made more than 40% on safe stocks like Coca-Cola and Intel in one year.
The problem is, covered call writing on blue-chip stocks is not a slam dunk like it was months ago. Option prices are down 78% from their peak in 2008, seriously hurting our potential income stream. Meanwhile, the stock market has rallied 70% in nine months. Signs of weakness are starting to appear. Former market leader Goldman Sachs just hit a two and a half month low. As my colleague Brian Hunt has shown, there is no buying power behind market rallies any more.
If you think stocks are set for a period of profit-taking weakness like I do, here's a unique covered call strategy to consider: writing covered call options on "inverse" exchange-traded funds (ETFs).
Inverse ETFs are investment funds set up to move in the opposite direction of conventional stocks and ETFs. Take the inverse China ETF (FXP) for example. It is structured to return double the inverse of the major China ETF (FXI). Or the inverse financial ETF (SKF). It is set up to return double the inverse of a bank stock index. (Due to the imperfect way they are set up, these funds don't perfectly mirror regular returns. But over the short term, they get close.)
SKF falls when the bank stocks rise. It rises when bank stocks fall. Right now, SKF is cheap, having fallen from more than $200 a share to $24. Meanwhile, there's plenty of volatility in the stock price. Right now, SKF trades for $24.50. You can buy a batch of shares and sell January $26 call options on the position for $1.41. That's a 5.7% instant payment on your ETF... for just two months. And you get to keep a little bit of upside.
Selling covered calls on SKF makes money as long as bank stocks don't soar and send SKF down in value. It makes money if bank stocks trade sideways or decline a bit.
I don't recommend this sort of "income trading" to most investors. It requires a good sense of timing. It requires you to be handy with options. But conventional income investing just isn't paying off right now. If you're comfortable with doing a little extra work, consider the strategy above.
Good investing,
Tom Dyson
P.S. If you're interested in these unique "income trading" ideas – or more conventional income producers like pipeline stocks and bonds – consider taking a trial subscription to The 12% Letter. You can learn more about a subscription here.
NEW HIGHS OF NOTE LAST WEEK
Goldcorp (GG)... gold
Royal Gold (RGLD)... gold
Barrick Gold (ABX)... gold
Yamana Gold (AUY)... gold
Newmont Mining (NEM)... gold
Keegan Resources (KGN)... gold
Silvercorp (SVM)... silver
Hecla Mining (HL)... silver
Silver Wheaton (SLW)... silver
Chevron (CVX)... Big Oil
Statoil ASA (STO)... Big Oil
Duke Energy (DUK)... utility
Syngenta (SYT)... agriculture
Starbucks (SBUX)... coffee shops
Google (GOOG)... search engine
Best Buy (BBY)... electronics retailer
Dillard's (DDS)... department stores
Deere & Co (DE)... farm & construction equipment
U.S. Global Investors (GROW)... asset manager
Freeport-McMoRan (FCX)... major juice!
Intuitive Surgical (ISRG)... robotic surgery
Pfizer (PFE)... Big Pharma
Novartis (NVS)... Big Pharma
NEW LOWS OF NOTE LAST WEEK
Severn Bancorp (SVBI)... bank
Mid Penn Bancorp (MPB)... bank
Smithtown Bancorp (SMTB)... bank
Citizens & Northern (CZNC)... bank
First Commonwealth Financial (FCF).. bank
Indiana Community Bancorp (INCB)... bank